Note: This is a Naked Put Trade!
Sold 2 SUCTC (August $55 Puts) naked puts for $2.80 to rake in about $550 - roughly a 5% return in 30 days. I previously sold naked puts on SSO for July $65 strikes a few weeks ago. The plan here is to double dollar cost average my way down without putting up cash to do so. Here’s a little diagram of what I expect to happen:
- Bought 200 SSO @ $66.30
- Sold 2 SSOGO ($67 strikes July Calls) for $2.00
- Sold 2 SSOSM ($65 July Puts) for $1.65
- Sold 2 SUCTC ($55 August Puts) for $2.80
So what’s likely to happen. If the market stays where it’s at through July expiry then my SSOGO calls will expire worthless - good. My SSOSM July $65 puts will be assigned - good; I’ll own 400 SSO at $65 which I will sell Sep 08, $67 Calls for $1.25 - good; My SUCTC options would expire worthless and I keep the premium - good. If the market raises from here then all my shares and options will be worth so much more!
If the market continues to drop then I’ll start the cycle all over again at a lower dollar cost averaged point. While everyone is whining about the market, I’ve raked in over $1200 in cash in a few weeks. Not bad at all.
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I understand how you sold the 2 SSOGO July calls as this is a covered call. But can you also sell the Puts on the same stock? I have been following your website closely but csn you explain this trade a little more, since I am a newbie.
Are these puts - Sell to close?
Yes, you can sell naked puts on the same stock/etf at the same time as selling covered call.
To Sell a Naked Put. You look at the PUT OPTIONS on a table. In your brokerage account, you want to select SELL TO OPEN to sell naked puts. (Note: it’s SELL TO OPEN to sell covered call too).
When you sell a naked put with a particular strike price, you are committing yourself to buying that stock at that strike price IF the stocks falls BELOW (or AT) the strike price.
When I sold SSOSM (July $65 strike) I committed myself to buying SSO at $65 if SSO fell below $65 on options expiry. This past Friday, SSO closed at $59.37 so I’ll be forced to buy SSO at $65. When selling naked puts, you need to be sure you keep cash reserves in your account to either close out your position or handle an assignment.
In respect to SUCTC, that’s August $55 put so I’ll need to wait till August 16th to find out if I’ll need to buy SSO at $55. If not, I keep the premium money. If so, then I’ll own 200 more SSO at $55.
Thank you for explaining. Now I got the trade.
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